African Governments Meddling In Tech Sector Could Hurt Growth

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Written by Tom Jackson

Far too many times over the last few months we have seen African governments meddle in the continent’s tech sector. The risk is that this undue involvement will curtail the growth of what is currently Africa’s most buoyant sector.

The Kenyan government was the latest to get active in tackling tech last week, backing legislation that will regulate content of gaming applications, video on demand (VoD) companies and over the top (OTT) services.

The Kenya Film and Classification Board (KFCB) wants to prevent VoD companies such as Netflix and more local firms from distributing material it has not ratified, imposing fines if content the board doesn’t like is hosted on such platforms.

If the idea of the KFCB telling Netflix what films and series it can and cannot host seems vaguely ridiculous, you only have to look slightly further afield to find other examples of governments clamping down in developing tech spaces.

In August, the Central Bank of Nigeria (CBN) moved against online remittance providers, hindering the growth of an exciting sector in favour of well established and expensive incumbents like Western Union. WorldRemit, one of the companies affected, called the new rules “draconian”. Thankfully everything has since returned to normal.

In the most draconian move of the lot, in June the Zimbabwean government blocked WhatsApp in a bid to crack down on a strike. There are other examples from across the continent.

Now, don’t get me wrong, there are plenty of reasons why governments feel the need to regulate, and plenty of reason why in many cases they should. Not all regulation is bad. In fact, often it is vital to the emergence of a vibrant sector that helps businesses and protects civil liberties.

“For governments particularly in Africa, regulation may be a strategic move to control increased threats of terrorism and money laundering. In addition, it may help governments to control the production and distribution of online materials on pornography, drugs and alcohol, and hate speech, as a result of increased internet penetration,” says Danson Njue, research analyst at Ovum.

Quite right. Not all regulation is bad. But some of the over-regulation we have been seeing from African governments in recent months is, and has the potential of hindering the growth of one of the most vibrant sectors the continent has to offer – the tech space.

The African tech space is defying the global slowdown, with African tech startups raising almost US$200 million in funding in 2015 and global firms such as Netflix displaying greater interest in the continent than ever before as internet penetration and spending power continue to rise.

Over-regulation

Over-regulation is a threat to this, as it to business in general.

In South Africa, for example, a study by New World Wealth analyst Andrew Amoils released last year found high levels of government intervention and high tax rates were harming the country’s development.

Government intervention was one of the major hindrances identified by Amoils.

“This is arguably the largest problem in South Africa, as the ANC government increasingly tampers with the business sector. Ongoing issues include: government-owned monopolies such as Eskom, BEE ownership and compulsory affirmative action hiring requirements enforced by government. All of these factors create large inefficiencies within the economy,” he wrote.

Apply these negative effects to a growing space like tech, and the results could be lethal.

“Over-regulation may slow the growth of the digital services sector which is a key growth sector for service providers,” Njue said.

“In addition, it may also deny people employment as the ICT sector plays an important role of providing both formal and informal employment in most countries on the continent. In Kenya, for instance, the proposed regulation will affect all service providers in the content and film sector, including stage plays producers, bloggers, commercial ad producers and distributors, and OTT players. This probably explains why the bill has been rejected by the film and media practitioners in the country.”

All bills that hinder the development of African tech should be carefully considered, therefore. The sector is growing at a rapid rate, and has been identified across the board as the continent’s opportunity to prosper. Freshfields said in a recent research report that investments in the TMT sector in Africa over the last decade higher returns than those in oil and gas.

The opportunities are immense. It would be an immense shame if they went unclaimed as a result of government heavy handedness.